February23,2023
Theviewsexpressedhereinarethoseoftheauthorsandshouldnotbe attributedtotheInternationalMonetaryFund,itsExecutiveBoards,orits Management.
197externalsovereigndebtrestructurings(withprivatecreditors)in 1975–2020(AsonumaandTrebesch2016)
Stylizedfactsfromempiricalanalysisonsovereigndebtrestructurings
ImpactsofrisingUSinterestrateandstrongUSdollar
Preemptiverestructuring —thosethatareimplementedwithoutmissed paymentsorwithonlymarginalmissedpaymentsafterthestartof negotiationswithcreditors;
Post-defaultrestructuring —thosewherepaymentsaremissed unilaterallyandwithouttheagreementofcreditors.
Rescheduling —alengtheningofmaturitiesoftheolddebt,possibly involvinglowerinterestrates;
Facevaluereduction—areductionintheface(nominal)valueofthe oldinstruments.
Post-defaultrestructuringsaccountsforaround60percentoftotal episodes.Restructuringswithfacevaluereductionaccountsforabout 30percent.
Restructuringstrategies(AsonumaandTrebesch2016)
Preemptiverestructuring(81episodes,41percentofthetotal)
Strictlypreemptive(33episodes)
Weaklypreemptive(48episodes)
Post-defaultrestructuring(116episodes,59percentofthetotal)
Restructuringmethods(CrucesandTrebesch2013&Asonuma, NiepeltandRanciere2023)
Facevaluereduction(63episodes,32percentofthetotal)
Maturityextension(133episodes,68percentofthetotal)
Facevaluereduction (AlesinaandWeder2002)
“Bookvalueconcept”:comparingfacevaluesofa“new”debtandan “old”debt.
FV Reduction =1 −
FacevalueofNewDebt
FacevalueofOldDebt
SZhaircut (SturzeneggerandZettelmeyer2008)
“Accounting(cashflow)concept”:comparingnetpresentvaluesof twocashflowstreams,a“new”debtandan“old”debt.
SZ Haircut =1
NPVofNewDebt(r new T )
NPVofOldDebt(r new T )
Exchangehaircut(recovery) (Asonuma,NiepeltandRanciere2023)
“Marketvalueconcept”:comparingmarketvaluesofa“new”debtand an“old”debt.
Exchange Haircut =1
Highshareofprivateexternaldebtrestructuringstendtotakeplace inhighUSTreasuryinterestrateperiod.
Bothpost-defaultandweaklypreemptiverestructuringsaremore likelytooccurwhenUSinterestrateishigh.
Whencreditorsareinbadfinancialcycles(underhigherinterestrate), post-defaultrestructuringsaresettledquickly.
Whencreditorsareinbadfinancialcycles(underhigherinterestrate), post-defaultrestructuringsaresettledwithhighNPVhaircuts
Whencreditorsareinbadfinancialcycles(underhigherinterestrate), post-defaultrestructuringsaresettledwithhighfacevaluereduction.
Privateexternaldebtrestructuringsarehighlyassociatedwithreal exchangeratedepreciation.
Realexchangeratedepreciatesseverelyafterpost-default restructurings,mildlyafterweaklypreemptiverestructurings.
Imports(value)declineseverelyinpost-defaultrestructurings,while export(value)declineinpreemptiverestructurings.
Stylizedfactsfrom197externalsovereigndebtrestructuringsin 1975–2020
Bothpost-defaultandweaklypreemptiverestructuringsaremore likelytooccurwhentheUSTreasuryinterestrateishigh.
Whencreditorsareinbadfinancialcycles(underhigherinterestrate), post-defaultrestructuringsaresettledquicklywithhigherNPV haircutsandnominalreduction.
Privateexternaldebtrestructuringsarehighlyassociatedwith exchangeratedepreciation.
Realexchangeratedepreciatesseverelyafterpost-default restructuringsandmoderatelyafterweaklypreemptiverestructurings.